An Introduction May 19 2011 Kim Alexander Fullerton Barrister amp Solicitor 256 River Side Drive Oakville ON L6K 3M9 9058491700 How is a Trust Established It is a legal relationship between ID: 223217
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Land Claim Settlement TrustAn IntroductionMay 19, 2011
Kim Alexander Fullerton
Barrister & Solicitor
256 River Side Drive
Oakville, ON L6K 3M9
905-849-1700Slide2
How is a Trust Established?It is a legal relationship betweenSettlor (FN pays money into Trust)Trustee(s) (holds the money for the benefit of FN)Beneficiary (FN & its Members)
Members must approve the Trust Agreement as part of the Land Claim Settlement Referendum
Kim Alexander Fullerton Barrister & Solicitor
2Slide3
Trust Set UpFirst Nation must be the Settlor If First Nation not seen as Settlor it can affect the taxation of the Trust
Beneficiary – First Nation, as represented by its Chief and Council and all members of the First Nation on a collective and undivided basis
Kim Alexander Fullerton Barrister & Solicitor
3Slide4
First Nation TrustsThree primary types of First Nation Trusts1) Corporate Trust2) Community Trust with Member Trustees
3) Hybrid, some combination of the first two
Kim Alexander Fullerton Barrister & Solicitor
4Slide5
Structure of First Nation TrustsFactors that can influence type of Trust Agreement:Amount of $Uses of the Trust Property
Decision making
Costs to administer the Trust
Chief and Council believe that the Corporate Trust Model is best for Georgina Island
Kim Alexander Fullerton Barrister & Solicitor
5Slide6
Corporate TrustThe role of the Trust is toReceive the $Invest the $
Make an annual payment to the First Nation
The Capital is generally not spent (except for clearly stated purposes like purchasing land)
Rather it is invested to generate income which is used to make the annual payment to the FN
Kim Alexander Fullerton Barrister & Solicitor
6Slide7
Corporate TrustThe Corporate Trustee generally has no role in determining how funds are spent in the communityThe decision to determine how to spend the annual payment is left to the community – which will need to be addressed separately
Kim Alexander Fullerton Barrister & Solicitor
7Slide8
Band Settlement Account
Trust Account
Initial Uses
Capital
Investment
Annual Payment
First Nation Responsibility
Trustee Responsibility
Corporate Trust
Community decides
what to do with funds
Uses & decision making need to be addressed by the First Nation
Another Trust
S. 83 Expenditure By-law
Financial PolicySlide9
Key Questions for Developing a TrustHow long should the Trust Last?What is the Purpose of the Trust?How can the Trust Property be expended?Which Trust Company to use?How should the investment of the funds be handled?
Personal Cash Distributions to Members (PCD)
Impact of Inflation
Demographics – How many Members will you have in 50 or 100 years?
Kim Alexander Fullerton Barrister & Solicitor
9Slide10
Key Questions for Developing a TrustWhat are the Tax Consequences?What are the accountability and reporting requirements of the Trust?What conflicts may arise and how will they be addressed?
Kim Alexander Fullerton Barrister & Solicitor
10Slide11
Key Questions for Building a TrustNo right or wrong answersNo “one size fits all”Each First Nation is unique – Trust needs to be designed to fit the First Nation’s purpose and the planTake the appropriate time, energy and resources to develop the plan and the Trust Agreement
Kim Alexander Fullerton Barrister & Solicitor
11Slide12
PurposeThe fundamental purposes for the Trust must be determinedSpecific Claim Settlement TrustThe Settlement Agreement with Canada will allow Georgina Island to buy land and add it to reserveOnce the purposes for the Trust are established then a plan needs to be put in place
Kim Alexander Fullerton Barrister & Solicitor
12Slide13
PlanOne of the first questions or decisions that will need to be made is “will the capital be spent and if so how much and on what?”The more utilized upfront means less will be available to invest and generate income in the long termThe more spent upfront on a PCD provides an immediate benefit to the current generation, but less benefits to future generations
Need to determine what is the appropriate balance for the community
Kim Alexander Fullerton Barrister & Solicitor
13Slide14
Uses of Trust PropertyObviously must match with the purpose and planCorporate Trusts are relatively straightforward– Trustee receives, invests and makes annual payment to FN
Kim Alexander Fullerton Barrister & Solicitor
14Slide15
Uses of Trust PropertyThe decisions for a Corporate Trust center aroundThe amount of the annual payment to FN
Who decides how the annual payment is spent
Can the Trust Property be used as security for loans
Amount of PCD
Kim Alexander Fullerton Barrister & Solicitor
15Slide16
Uses of Trust PropertyCorporate TrustAnnual Payment can be structured in different waysAnnual Income
Fluctuates yearly based on rate of return
Long term planning more difficult
Need to address growth of the Trust Property
Smoothing Mechanism Set minimum amountPercentage of Trust Property - 2% to 5%
Makes long term planning easier
Kim Alexander Fullerton Barrister & Solicitor
16Slide17
Uses of Trust PropertyCorporate TrustHow the annual payment is used by the First Nation will be addressedWhat are the Authorized uses
Who and how are decisions made
what are the rules
How are conflicts to be addressed
Can be set out in a separate documentSection 83 Expenditure By-lawFinancial Policy
Kim Alexander Fullerton Barrister & Solicitor
17Slide18
InvestingEnsure get qualified adviceInvestment provisions dictated by the purpose, plan and time horizonHave specific provisions in the Trust Agreement to address investing the Trust Property which, at a minimum:Requires the Trustee and the FN to
obtain qualified advice
Requires the development of an Investment Policy
Clearly provides for who can be retained to do the investing
Kim Alexander Fullerton Barrister & Solicitor
18Slide19
TaxationA FN Trust is neither an Indian nor a First Nation and must pay tax on any retained income in the Trust at the end of every yearGet qualified advice, there are ways to avoid paying tax
While taxation is important, it should not be the overriding factor in determining the plan for the Trust
Kim Alexander Fullerton Barrister & Solicitor
19Slide20
ReportingThe operation of the Trust should be open and transparentRegular reporting requirementsRegular meetings with Council and members
If people know what is going on, they feel more comfortable
Kim Alexander Fullerton Barrister & Solicitor
20Slide21
Annual Operating ExpendituresWhat is it going to cost to implement the Trust?Need controls in the Trust Agreement on such expendituresBudgetary process
Annual Expenditure should not exceed 1% of the value of the trust property
Kim Alexander Fullerton Barrister & Solicitor
21Slide22
ConclusionTake the necessary time and thought in developing the plan and Trust AgreementBe clear on the plan to be followedAllow ample time for community consultation
Use qualified experts
Have an adequate budget for development of the Trust
Kim Alexander Fullerton Barrister & Solicitor
22Slide23
Questions?Kim Alexander Fullerton Barrister & Solicitor23